Did News Corp. Cover Up U.S. Computer Hacking?

Faced with allegations that its employees had hacked into a competitor's password-protected website and stolen proprietary information, a News Corp. marketing firm responded by launching a woefully inadequate internal investigation that "failed to perform any" of the "basic steps" necessary to identify the culprits, according to forensic expert hired by the competing company.

The inept U.S. inquiry seems to mirror the inept inquiry News Corp. launched in the wake of British phone-hacking allegations in 2007.

Claims of computer hacking in the United States continue to haunt Rupert Murdoch's News Corp., coming as they do in the wake of the unraveling phone-hacking scandal; a scandal the chairman is desperate to keep out of the American arena. However, any suggestion Murdoch's company responded to stateside computer hacking claims with an incompetent investigation that covered up wrongdoing would likely be of interest to U.S. investigators currently reviewing News Corp.'s business practices.

This Murdoch headache has been a decade in the making. In 1996, a New Jersey start-up company, Floorgraphics (FGI), was created to sell large advertising decals placed on the floors of grocery stores. In 1999, FGI's founders met with Paul Carlucci, CEO of News America Marketing, an in-store advertising division of News Corp. At lunch, after FGI founders rebuffed Carlucci's offer to buy the company, Murdoch's man allegedly threatened to "destroy" FGI.

Years later, FGI executives discovered the company's' secure website had been broken into nearly a dozen times in a three-month period and confidential information had been obtained. They alleged Murdoch's marketing company was spreading lies about FGI and using its proprietary information to steal away clients.

After failing to convince Chris Christie's team at the New Jersey U.S. Attorney's office to pursue the hacking charges, FGI filed a civil lawsuit. In preparation of the trial, FGI hired forensic examiner Luke Cats to review the internal investigation News Corp. conducted to find out who the hackers were. Cats' report concluded News Corp.'s investigation was completely lacking.

Here's why the report now may be of added significance: In the wake of the British phone-hacking scandal, federal investigators are taking a broad look of News Corp.'s practices in the United States and trying to determine if there is a larger pattern of corporate corruption. The FGI case may indicate there is a streak of criminality within News Corp., and that breaking the law in order to obtain crucial information was not restricted to tabloid reporters hacking voice mails in Britain.

What's also damaging is that at the 2009 FGI trial, News Corp.'s attorney admittedthe hacking took place and that News Corp. computers were used in the process. However, the attorney stressed News Corp. was not able to determine who was responsible for the law breaking. That inability to I.D. the hacker allowed News Corp. to maintain its distance from the criminal activity.

With federal investigators now reportedly re-examining the computer hacking charges as part of a larger corruption probe, claims that News Corp. did little to find out who used its computers to hack a competitor could prove damaging.

Note: Days after the FGI trial began, News Corp. abruptly settled the suit for $30 million and agreed to purchase the company's assets. The trial was terminated before Cats' report was introduced; a report that stressed News Corp. extended minimal effort to identify FGI's hackers.

From Bloomberg [emphasis added]

Alerted to the hacking by Floorgraphics, News America Marketing started a "rudimentary and deficient" probe and failed to pursue obvious leads, Cats wrote. In reviewing the investigation, he said he was relying on the deposition of David Benson, News America Marketing's chief information officer. News America Marketing's "investigation falls far short of any standards in this area," Cats said.

…

In his report, Cats said that investigators for News America Marketing "appear to have lacked the basic skills one would expect of IT personnel charged with securing the integrity of corporate networks."

Investigators interviewed only one company employee, searched a single computer for clues of hacking, didn't ask important questions, and failed to save documents and notes, Cats said.

They didn't question an employee who had once worked for Floorgraphics, didn't scan a company computer registry that kept track of usernames and passwords that are entered, and didn't check whether Floorgraphics' site was password-protected, said Cats, who had previously worked as a forensic expert for the New York Police Department. Investigators "failed to perform any of these basic steps," Cats wrote, calling their probe "deficient."

Note that in terms of patterns of News Corp. behavior, when allegations were first made that Murdoch tabloid employees in Britain were hacking voice mails in search of celebrity scoops, the company responded with an internal investigation. Appearing before Parliament in 2007, Murdoch's longtime confidant, Les Hinton, announced that News Corp.'s review had determined that aside from a single rogue element, the company did not have a widespread hacking problem.

Since then, of course, it's been shown that News Corp.'s internal review was utterly deficient, which may indicate that a pattern of hacking followed by a pattern of cover-ups could be emerging.